Real estate agent tricks to watch out for

The sun is out, the Rugby World Cup is over and real estate agents' signage is being erected en masse for the summer selling season.

For most people, their house is their second-biggest wealth creator after their salary.

It's timely, therefore, for a few reminders about the real estate sales process.

The majority of real estate agents do a good job and earn a fair income overall. Choosing the wrong agent, however, could potentially cost tens of thousands of dollars - either through unnecessary commissions or jiggery pokery which ensures you sell for too little or pay too much.

The industry always had dirty laundry, but dealt with it in private with the odd slap on the hand and fine. The good news is that the Real Estate Agents Authority (REAA), which came into being in November 2009, and licensing of real estate agents is helping to clean up an industry with a bad reputation.

The REAA's statistics show that 42 per cent of complaints are for incompetence/negligence, 17 per cent about marketing, 11 per cent a commission dispute and a small percentage each for: confidentiality breach, non-disclosure, conflict of interest, undue pressure, conduct unrelated to real estate agency work and other breaches of the act.

The licensing regime and independent complaints body encourages agents to toe the line. These factors mean it's now in the agents' interest to 'fess up and pay off a complainant with a fair gripe before the case gets to the REAA. The names of most of those agents found guilty of misconduct and other breaches of the code of conduct are published, which isn't good for their marketing.When choosing an agent, vendors should check their record on the REAA.govt.nz website to see if there are any judgments against them or if the agent is a repeat offender.

Certain rogue agents' names are starting to show up again and again on the REAA database. Debbie Lovegrove of Manurewa has had complaints against her upheld on three occasions and is currently suspended from operating as a real estate agent.

The most worrying complaint against Lovegrove related to a practice that has also occurred at other agencies. According to the complaint determination, she inserted a clause in sale and purchase agreements saying that buyers couldn't use XYZ Inspections Limited. Lovegrove argued that the company's surveyor was "over the top with his inspections".

Another agency was found to be barring building inspectors from doing reports. This type of approach to a property with significant defects, such as a leaky home, could be disastrous for a buyer, which is why the REAA views the practice dimly.

The Lovegrove case is a good reminder that buyers should always choose their own building inspector who provides reports that conform to the residential property inspection New Zealand standard NZS 4306. Likewise, it's essential to choose an independent valuer, solicitor, accountant, mortgage broker and so on. Those recommended by agents may not be truly independent.

The extremes some agents go to are coming out in the wash of the REAA judgments. The case against agent Sophia Khan was one notable for being at the more serious end of "misconduct". Khan first sold a property at a knock-down price to a nephew and took commission. She listed it again soon afterwards at a jacked-up price, lent a new buyer the deposit for the property and took the profit on the sale herself. The buyer couldn't afford the mortgage and the lender lost out as well. Because she was prosecuted under the old legislation, Khan was only fined $750.

The public can complain to the REAA about any property transactions dating back to 1976. The maximum for complaints subsequent to November 2009 is $15,000. The REAA can also order compensation of up to $100,000.

Some other examples of recent REAA judgments include:

* Ross Niccol, of Century 21 Countrywide Real Estate, Te Puke, was found guilty of "unsatisfactory conduct" for advertising a property for sale without a listing agreement and for a price that was well below what the owner considered it was worth.

* Rita Charles, of Nationwide Real Estate, Papatoetoe, failed to declare to the vendor that she was an agent and then convinced them to drop the price by $5000 because the buyer needed the money to attend a funeral in Samoa. The vendor later found out that there was no death.

* Mackys Real Estate was found guilty of "unsatisfactory conduct" after it advertised an illegal flat as a "home and income opportunity" with a potential rental of $270 a week.

Problems with real estate agents can be avoided if vendors and buyers are on their toes and do due diligence, such as checking council files, not just the LIM.

They could also be avoided if all verbal conversations and texts are followed up in writing or simply recorded. Most modern mobile phones have recording devices. A record of the conversation could save the consumer from difficult disputes of the "he said, she said" variety.

Other common tricks agents play, which aren't necessarily in the best interest of the vendor or buyer, include:

* Pushing vendors to pay for advertising they don't need in order to market the agency, not the property. Some agents take a cut from this advertising as well.

* Quoting unrealistic prices in the hope of grabbing the business and then conditioning the vendor down.

* Citing ranges of pricing to buyers that are lower than the vendor will accept in order to lure in buyers or condition down sellers.

Failing to disclose that the agent is either selling or buying the property personally or on behalf of a close relative.

Agents have the ability to make a huge financial impact on their clients. As City Sales owner Martin Dunn points out in his new book, Realtor Bible, a good agent can be "a dangerous animal", but with it goes responsibilities that not all agents live up to. Dunn cites the marketing people who sold many thousands of apartments off the plans before they were built.

I wouldn't criticise anyone for trying to sell their house privately - at least for a few weeks. Selling a property isn't complicated if someone comes along that wants to buy it. It is easy enough to get an independent valuation to ensure that you're selling it for the right price.

An agent may get a good price for a property. Agents argue that they achieve a higher price. Whether they can achieve tens of thousands of dollars to cover the commission and advertising costs isn't always a given. On the other hand, it's in their interests to sell the property fast and get their commission in their bank accounts as soon as possible.

A $20,000 drop in selling price can be enormous for a seller. For an agent, it means an $800 drop in commission for those charging 4 per cent. Some agents are motivated by this to push the vendor to take any offer that comes along.

Valuer Rene McLean, of Property Indepth, has seen a number of instances where a real estate agent has recommended prices that are well wide of the mark. The agent may be inflating the price to get the business, or pricing it low in order to sell fast and get quick commission.

If you've tried selling privately and had no luck after a short while, consider using an agent.

A good agent will have sales and negotiation skills which can, in some instances, get a wavering buyer over the line to a sale.

In one case, McLean was contacted by an overseas vendor whose agent had sold the tenanted home and income property in Manurewa within a couple of days of listing. She feared correctly that the agent had under-priced the property to get a quick commission.

The valuation came in at $50,000 more than the property sold for - and she'd had to pay significant commission to the agent.

In another instance, an agent told a Papakura vendor that he could get $100,000 more than a property was valued at. The agent won the business, but the property subsequently took six months to sell and fetched exactly what McLean had valued it at.

Finally, a couple of slightly dated, but still useful books to read about buying houses are The Rascal's Guide to Real Estate by Olly Newland and Real Estate Without Agents by Terry Ryder.